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Project Development Programme East Africa

Tanzania’s Wind Energy Market Target Market Analysis

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Target Market Analysis

Tanzania’s Wind Energy Market


Author

Integrated Energy Solutions (IES)

Mark Hankins

November 2009

Editor

Deutsche Gesellschaft für Technische

Zusammenarbeit (GTZ) GmbH

On behalf of the

German Federal Ministry

of Economics and Technology (BMWi)

Contact

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This Target Market Analysis is part of the Project Development Programme (PDP) East Africa. PDP East Africa is implemented

by the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) on behalf of the German Federal Ministry of Economics

and Technology (BMWi) in context of the Export Initiative Renewable Energies. More information about the PDP and about

renewable energy markets in East Africa: www.gtz.de/projektentwicklungsprogramm

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Target Market Analysis: Tanzania’s Wind Energy Market V

Content

1 STATUS QUO OF THE WIND ENERGY SECTOR ................................................................. 1

1.1 Brief Wind Energy Sector Overview ...................................................................................................... 1

1.2 Major Market Segments ....................................................................................................................... 2

1.3 Local Capacities..................................................................................................................................... 3 1.3.1 (Potential) Grid-Connect Wind Farms ................................................................................................. 3 1.3.2 Off-Grid Wind Projects ........................................................................................................................ 3

2 WIND ENERGY MARKET POTENTIALS ............................................................................... 5

2.1 Overall Sector Outlook .......................................................................................................................... 5 2.1.1 Grid-Connect Wind Generation Opportunities .......................................................................................... 5 2.1.2 Off-Grid Wind Generation Opportunities .................................................................................................. 6

2.2 Undeveloped Market Opportunities ..................................................................................................... 8 2.2.1 Stand-Alone Wind Systems for Commercial Battery Charging Stations..................................................... 8 2.2.2 Stand-Alone Wind Generators for Tourism in Off-Grid Locations ............................................................. 8 2.2.3 Stand-Alone Wind Generators in Hybrid Systems for Telecommunication ............................................... 9 2.2.4 Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids ................................................ 9

3 WIND ENERGY-SPECIFIC REGULATION AND FRAMEWORK ..................................... 10

3.1 Policies and Regulations ..................................................................................................................... 10

3.2 Applicable Public Sector Support/ Financing Mechanisms and Sources .............................................. 12 3.2.1 Grid-Connected Wind Tariffs ................................................................................................................... 12 3.2.2 Mini-Grid Wind Tariffs .............................................................................................................................. 13

4 BUSINESS PARTNERS AND COMPETITORS IN THE WIND ENERGY SECTOR....... 14

4.1 Overview of Wind Energy Key Market Players .................................................................................... 14

4.2 Overview Major and/or Most Emblematic Wind Energy Projects ....................................................... 14

ANNEX: STANDARDISED POWER PURCHASE TARIFFS (SPPT) ...................................... 15

Target Market Analysis: Tanzania’s Wind Energy Market VI

List of Tables Table 1: Wind Resources in Tanzania ..................................................................................................................... 1

Table 2: Existing Capacity for Studies and Works ................................................................................................... 4

Table 3: Summary of Wind Opportunities in Tanzania ............................................................................................ 5

Table 4: Grid-Connect Opportunities ....................................................................................................................... 6

Table 5: Off-Grid Stand Alone Wind Generator Opportunities ................................................................................. 7

Table 6: Stand-Alone Wind Systems for Commercial Battery Charging Stations .................................................... 8

Table 7: Stand-Alone Wind Generators for Tourism in Off-Grid Locations .............................................................. 8

Table 8: Stand-Alone Wind Generators in Hybrid Systems for Telecommunication ................................................ 9

Table 9: Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids .................................................. 9

Table 10: Incentives and Support Mechanisms for Wind Project Developers........................................................ 12

Table 11: Grid-Connected Wind Tariffs ................................................................................................................. 13

Table 12: Mini-Grid Wind Tariffs ............................................................................................................................ 13

Table 13: Tanzania's Wind Energy Key Market Players ........................................................................................ 14

Annex

Table 14: Seasonally Adjusted Standardised Tariff Payable for Power Delivered to Buyer in 2008 ...................... 15

Table 15: Seasonally Adjusted Standardised Tariffs ............................................................................................. 15

Currency

1 USD = TZS 1,440 (May 2010)

1 € = TZS 1,776 (May 2010)

Measurement

W Watt Wp Watt peak Wh Watt hour

kW Kilowatt kWp Kilowatt peak kWh Kilowatt hour

MW Megawatt MWp Megawatt peak MWh Megawatt hour

GW Gigawatt GWp Gigawatt peak GWh Gigawatt hour

Target Market Analysis: Tanzania’s Wind Energy Market VII

List of Acronyms

BBS Battery Based System

CDM Clean Development Mechanism

DANIDA Danish International Aid Organisation (Ministry of Foreign Affairs)

EIA Environmental Impact Assessment

EWURA Energy and Water Utility Regulatory Authority

GEF Global Environment Facility

HFO Heavy Fuel Oil

ICT Information and Communication Technology

LRMC Long Run Marginal Cost

MEM Ministry of Energy and Minerals

MFI Micro Finance Institutions

m/s Meter per Second (Wind Speed Measurement)

NEMA National Environment Monitoring Agency

NGO Non-Governmental Organisation

O & M Operation and Maintenance

PPA Power Purchase Agreement

PV Photovoltaic

REA Rural Energy Agency

SHS Solar Home System

SIDA Swedish International Development Cooperation Agency

SME Small- and medium-sized enterprise

SPP Small Power Project

SPPA Standardised Power Purchase Agreement

SPPT Standardised Power Purchase Tariffs

TADEP Tanzania Access Development Energy Project

TANESCO Tanzania Electric Supply Company

TIC Tanzania Investment Centre

UNDP United Nations Development Programme

USAID United States Agency for International Development

VDC Volts Direct Current

Target Market Analysis: Tanzania’s Wind Energy Market VIII

Summary

Tanzania has encouraging wind resources throughout the Rift Valley, in the highland plains and along

the coast, however, thorough exploration has yet to be conducted. To date, only a handful of off-grid

wind plants have been installed, including wind pumps and small-scale power generators, and no grid-

connected systems.

There are undeveloped opportunities to establish stand-alone wind systems for telecom, tourism and

mini-grid. There is an estimated short-term potential for 300-500 MW of grid-connected wind farms.

Although Tanzania does not have a programme of feed-in tariffs that provides set payments for

specified technologies, it has recently-designed mechanisms to encourage the development of small

renewable energy-based power plants, namely hydro, wind and biomass. These mechanisms include

a standardised power purchase agreement (SPPA) and associated standardised power purchase

tariffs (SPPT). Small power projects are defined for small power plants that use a renewable energy

power source (or waste heat) with an installed capacity of between 100 kW and 10 MW.

At present, several companies are in development stages of setting up wind farms of around 50 MW

and more in the Rift Valley that could be operational in the near future. It is expected that their positive

experiences will open up a larger market for wind generation and improve the current poor product

supply chains and technical training available.

Target Market Analysis: Tanzania’s Wind Energy Market 1

1 Status Quo of the Wind Energy Sector

1.1 Brief Wind Energy Sector Overview

Before the 1990’s, Tanzania was considered by the global wind power community to be an area of low

wind potential. In the coastal areas prevailing South-Eastern (S.E. Trades) and North-Eastern (N.E.

Monsoon) winds offered marginal potential as wind farm sites. However, after 20001, a number of

inland areas along the edge of the Rift Valley were studied more carefully and seen to offer wind

resources greater than coastal areas. A number of these areas are being considered as potential wind

farm sites in 2009 by major investors. Tanzania has an estimated multi-GW wind potential that, as yet,

has not been quantified.

There is a lack of comprehensive data about wind resources in Tanzania, and any developer of

projects or seller of wind equipment will need to focus on gathering quality data. Available data is

mostly from 10 m masts of Tanzania Meteorological Agency stations, and much of it is not suitable for

predicting output of wind farms. Nevertheless, results are promising in a number of sites with average

speeds exceeding 8 m/s in certain locations. DANIDA/Risø/ TANESCO (2003) and wind companies

themselves have made major efforts to assess wind resources and undertake investment feasibility for

harnessing wind energy. Specific locations for which there is detailed information are described in the

table below:

Table 1: Wind Resources in Tanzania

Site Study 10 m Wind

Speed (m/s)

30 m Wind Speed (m/s)

Makambako Original Wind East

Africa

7.6 8.7

Singida Wind East Africa 8.2 9.4

Karatu (Arusha) DANIDA/Risø/

TANESCO

4.9 5.5

Mkumbara (Tanga) DANIDA/Risø/

TANESCO

4.14 4.9

Gomvu (Kigamboni) DANIDA/Risø/

TANESCO

3.56 4.28

Litembe (Mtwara) DANIDA/Risø/

TANESCO

3.21 4.47

The DANIDA/Risø/TANESCO study (2003) also used satellite data to evaluate off-shore coastal wind

speeds and found that:

the average of annual wind speed is over 6 m/s along the coast

there is no significant variation between the North and the South coast of Tanzania and

there is a significant seasonal difference in wind speed (speeds range between less than 5

m/s in November/December and over 8 m/s in July).

Factors that make Tanzania’s wind regime interesting (especially in the Rift Valley) are the low

turbulence, high average speeds and unidirectional nature of the flow. From measurements in some

sites, net annual capacity factors as high as 40 % would be possible. Also notable is the fact that

ample areas of land are available in areas of good wind resources.

1 Following similar inland studies along the Rift Valley in Kenya.


Use of off-grid wind energy in Tanzania has been established for decades. At least 150 wind-pumping

systems have been installed by missionary projects, communities and private individuals, but not all

are currently operational. There are as many as several hundred installed small wind turbine units in

off-grid parts of the country (totalling > 400 kW). However, neither the off-grid wind pump market nor

the wind generator market has developed to warrant an organised supply chain for products outside of

occasional purchases. Suppliers of off-grid wind systems are only beginning to get established, wind

generators are available on demand from the major solar suppliers.

As of June 2009, there was no grid connecting wind systems in Tanzania and two known projects of

over 50 MW in planning stages. There is recently growing interest data-gathering throughout the

country, following a 2002-DANIDA/Risø study that assessed four sites for large-scale wind projects

(included in Table 1). The first generation of pioneer grid-connected wind farms are testing the waters

and are negotiating with the government, power companies and regulatory bodies to put in place

processes that will make wind projects and power purchase agreements (PPAs) much simpler in the

future.

1.2 Major Market Segments

The current shortfall in electricity supply in Tanzania presents ample opportunities for wind electricity,

both on- and off-grid. Nevertheless, it is taking time for the power sector to appreciate the major role

that wind can play. The “novel” nature of wind technologies means that government players (the

Ministry, the regulator EWURA, the power company TANESCO and the Rural Energy Agency (REA))

are only now coming to terms with the processes of assessing resources, attracting developers, and

negotiating agreements with wind suppliers and projects as wind farms are increasingly seen as a

viable method of closing the shortfall.

Grid-based electricity

There is no operating wind power generation on-grid. Installed generation capacity on TANESCO’s

interconnected transmission system amounts to 888 MW primarily from hydro and thermal generation

as follows:

Hydro: 561 MW. Note that most hydro sites are in the South of the country while demand is

primarily in the North (Arusha, Mwanza) and East (Dar es Salaam). Hydro resources fluctuate

considerably during extended dry periods.

Thermal: 304 MW (from natural gas and HFO generators).

Isolated thermal stations in about 12 sites contribute an additional total of 32 MW (Diesel

based).

Demand for power from 602,500 consumers, stands at just under 800 MW and has been growing at

eight to 15 % per year, closely following the strong trends in economic growth over the past decade. It

is recognised that demand for grid is out-stripping supply and that wind power is an option, particularly

since wind tends to be available in increased amounts during dry periods when hydro availability is

constrained.

Off-grid electricity

There are many small off-grid wind pumps and wind generators in operation. 75 % of Tanzania’s

estimated population of 41 million is located in rural areas. At the same time, less than 5 % of this

population is served by the grid and large areas of the country are completely un-served by grid

power. Many of these off-grid areas have excellent wind resources.


The key constraint of off-grid populations is “ability-to-pay” for electricity. In general, those located

further from the grid have proportionally lower levels of economic activity, but there are a number of

economically active sectors in areas poorly served by the grid, including mining, tourism, and telecom

which would be willing to invest in power systems.

1.3 Local Capacities

Beyond the assessment of wind resources for wind energy projects, local skills regarding project

design and implementation need specific capacity building measures in Tanzania – both for off-grid

and grid-connect projects. The challenges of each market are different, and the capacity needs of the

sectors are distinct. The two categories are considered separately in the discussions below.

There is no wind power industry association in the country. The current wind measurement, project

development, negotiation and installation and capacities reside with a few agencies, including:

TANESCO - Tanzania Electricity Supply Company Ltd

Tanzania Meteorological Agency

Ministry of Energy and Minerals (MEM)

Wind East Africa (wind company)

1.3.1 (Potential) Grid-Connect Wind Farms

Wind farms rely extensively on imported expertise and technology. The current active projects in the

country are rapidly building skills that previously were not available and will result in a network of

agencies that can be utilised by future projects. The process, however, for the pioneer companies is

time consuming and therefore result in relatively high up-front investment costs. For developers

interested in importing 1 MW systems into the country, it would be expected that capacity issues would

be a major problem.

Wind studies: There has been a rapid build-up in capacity to gather data and this is not seen

as a problem area. Companies that put up masts for telecom base stations are capable of

readily setting up wind measurement stations.

Power purchase agreements (PPA): There is little capacity in place to complete the complex

legal arrangements involved in setting up PPAs.

Civil works is not seen to be a major problem area as there are companies that have the

capacity to install the wind generator bases and complete the interconnection work.

Cranes for the erection of the wind towers are not available in the country currently.

Transport of large wind towers and/or blade components on the limited road network is

expensive and disruptive due to limited traffic flows from the port city of Dar es Salaam. There

are regulations that make the process of moving equipment expensive and difficult to

complete.

Load flow study: Current projects have had to bring in their own consultants to complete

these studies on behalf of the power company.

1.3.2 Off-Grid Wind Projects

Execution of small off-grid wind projects relies largely on existing networks of PV and generation

installers/designers. Since retailers often lack capacity to design and market off-grid wind systems the

support to develop these skills often comes from supplier companies or projects. Companies that

install and design systems generally train their own staff or send their staff abroad for this training.


The demand for small wind generators in Tanzania has not developed and consequently neither have

supply chains. Unlike the case for PV equipment, dealers do not usually stock wind turbines and they

are supplied on order and/or purchased opportunistically by dealers. Dealers have not rolled out

marketing campaigns for wind turbines, thus rural consumers are largely unaware of the technology

and prices are extremely high. Those that purchase get their information along different channels or

import units directly from outside the country.

There is no accepted accreditation system or hand-over procedure to ensure that systems are

properly done (as there is with grid systems). Consumer agencies are often at the mercy of suppliers

when systems are installed.

Development of the mini-grid or large off-grid system market is constrained by a lack of capacity to

design and install large systems, and a lack of faith among potential customers, in company capacity

to complete and execute large systems.

Table 2: Existing Capacity for Studies and Works

Tanzania private firms or

individuals

International firms present

in Tanzania

Government

institutions

Wind resource study -/+ ++ -/+

Site survey and rough

system design

+ + -/+

PPA Negotiation - + -/+

Technical plant design -/+ + -

Feasibility study + ++ +

Construction work ++ ++ N/A

Engineering work + + -/+

Electrical work ++ + +

Business development

advice

+ + N/A

- not available; -/+ limited; + can be found; ++ there is choice


2 Wind Energy Market Potentials

2.1 Overall Sector Outlook

Table 3 below summarises the main opportunities in the Tanzanian wind sector. These include grid-

connected wind farms, off-grid isolated wind generators for a variety of applications and wind pumping.

Table 3: Summary of Wind Opportunities in Tanzania

Wind sector

opportunities

Current demand Basic description of opportunity

Stand-alone off-grid

wind opportunities Total installed

capacity less than 500

kW

Domestic market: High end market

Social institutions and community (schools,

clinics, NGOs)

Commercial: small business applications

Tourism: Systems for small camps and for larger

off-grid lodges and camps (in combination with

gensets as hybrid)

Telecom: medium-sized systems for off-grid base

stations, consumer side systems

Grid-connect or mini-

grid wind opportunities

No active grid connect

farms

Several 50 MW+

projects in planning

stages

Wind farm opportunities. Most of the wind

resources are along the Rift Valley

Market for large-sized systems

Hybrid mini-grids (in tourism, rural electrification,

commercial developments)

Isolated generation/hybrid: Mtwara, Lindi, Mafia

Island

Potential market for second hand “used”

generators

Water pumping ±150 installed units in

the country

Sporadic installations

Agricultural: Focus on pumping and market ready

applications

Livestock

Community water supply

2.1.1 Grid-Connect Wind Generation Opportunities

The largest wind sector opportunity by far is grid-connected wind power, given the rising demand for

grid electricity in Tanzania, ample wind resources and the virgin nature of the sector. The

DANIDA/Risø/TANESCO study (2003) modelled 50 MW wind electricity project cost at USD 0,07-0,09

per kWh (at the Mkumbara site). This compares favourably with TANESCO LRMC of electricity (>

USD 0,066).

Tanzania is quickly developing interest in wind farms, since 2002 there has been a number of potential

investors evaluating the country for wind projects. However, because (East) Africa is still seen as

“risky” by large wind companies/developers, since the process of establishing a wind farm is not fully

defined and Tanzania has not developed feed-in tariffs or specific targets for wind, this is still not an

especially active area.

Nevertheless, once there is an established method for developing and approving wind projects, it is

likely that the sector will expand at a steady and promising pace.


“Wind farms could be established anywhere along the national grid. The necessary sub-station and transmission

lines for grid connection should be considered as part of the wind farm project. The feasibility of wind farms

depends on the cost of energy from such a wind farm, which in turn will depend on the wind conditions. There is

no reason to believe that costs of construction and operation of a wind farm in any of the areas visited along the

Pangani River or between Mbulu and Karatu should be significantly higher than elsewhere in the world, provided

that the wind farm has a sufficiently large size and uses commercially proven technology and internationally

experienced suppliers.”2

The short-term upper limit of wind farm activities is likely to be 300 – 500 MW. This is a technical

limitation based on grid size (it does not necessarily mean wind potential would be exhausted or that

more wind could be added as the grid increases in size). Larger wind farms would present technical

difficulties in system integration, esp. regarding grid power balancing.

Table 4: Grid-Connect Opportunities

Applied technology

Wind farms utilising state-of-the-art large wind generators (i.e. 1-3 MW)

Wind farms utilising second hand wind generators from European markets

Wind farms feeding into isolated grids

Expected financial

volume Hundreds of millions of USD

Competitiveness Where wind resources are above 7-8 m/s, wind appears to be competitive with the

cost of grid electricity.

Planning Two or more year time horizon

Predominate operator

models

Developer consortium including technology provider

Engineering firms

Financier

Carbon traders

Local partners

Constraints/obstacles

Lack of defined feed-in tariff and risks of completing deal

Difficulty of attracting major wind suppliers

Financing arrangements

PPAs

Ability of TANESCO to pay

Construction of towers (cranes), delivery of wind machines to site from coast

Recommendations

for German

enterprises

A strong partner with government linkages is necessary to complete local

negotiations.

Understand the PPA-development process as a first step.

TANESCO operates twelve isolated networks - all based on small diesel engines: Kigoma, Mtwara,

Lindi, Njombe, Mafia, Mpanda, Tunduru, Songea, Liwale, Ikwiriri, Masasi and Kilwa Masoko. These

have a combined installed capacity of 31 MW but they effectively contribute about 15 MW due to aged

machinery and lack of spare parts. These isolated networks may present an opportunity for mini-grid

wind power, especially given the higher tariffs offered to isolated networks.

2.1.2 Off-Grid Wind Generation Opportunities

Opportunities in off-grid wind can generate a high return on investment. However, the potential clients

are more dispersed, harder to educate and reach and expensive to serve. An off-grid wind business

venture would make more sense if piggybacked upon a business that provides a similar product or

service to off-grid customers (PV, generators, hardware, etc.).

2 Risø/Danida, 2003.


Off-grid wind generation opportunities are similar to opportunities in the off-grid PV sector3 and, if it

was better developed, an off-grid wind supply chain could follow the same model. However, suppliers

questioned about wind generators said that there is little demand and it is sporadic. Little study has

been made of existing demand for stand-alone wind generation units.

The technical and geographical potential for off-grid wind is relatively high. Known wind resources are

ample and 75 % of the population is off-grid. However, the economic potential for wind in off-grid areas

is limited because incomes in off-grid areas tend to be relatively low. Unlike PV systems, wind power

systems have a lower size limit (i.e. 200 W) meaning that they cannot be scaled down to sizes and

unit prices small enough to be attractive to the majority of rural households or small- and medium-

sized enterprises (SMEs).

Therefore, estimating reliable market potentials for off-grid wind systems is considerably more difficult

than for the PV market because any demand would depend greatly on wind resources (which yet has

to be completely scoped out), trade-offs against other technologies, consumers’ ability to pay and

assumed consumer demand.

Two main areas of potential interest include:

Domestic and small commercial. Only high-end consumers with relatively sophisticated

knowledge of energy systems would buy wind generators. If it were assumed that 5 % of the

large solar home system (SHS) market (i.e. over 100 Wp) instead bought a wind generator,

this would reflect a total market potential market of about 2000 units.

Missions, NGOs and governmental institutions. This is the area where there has been the

most activity in the market place. The Rural Energy Agency (REA) has set aside funds for

purchase of wind generators for rural institutions. As well, there is constant demand for small

energy systems from missions and NGOs.

Table 5: Off-Grid Stand Alone Wind Generator Opportunities

Applied technology Wind generators for stand-alone applications including household power,

community institutions, small commercial sites, tourism and telecommunications.

Components include generators, invertors, charge regulators, batteries, associated

electrical spares.

Expected financial

volume

Total potential market size is unlikely to be above USD 15 million. A well-developed

market might sell several hundred thousand USD worth of equipment per year.

Competitiveness There is little competition in this sector. An aggressive marketer of wind generators

could conceivably do well selling wind generators in addition to other products (gen-

sets, PV) to the off-grid market.

Planning Wind generators are expensive items to keep in inventory. Any agent would have to

ensure that his ability to stock and deliver units is on part with demand.

Predominate operator

models

Would use PV or diesel gen-set supply networks

Wholesaler-retailer-technician

Possible use of agents in windy target areas

Sales and system design for NGO/mission, tourism and telecommunication

would require tailored approach

Constraints/obstacles High cost of inventory

Lack of consumer awareness and demand

Need for marketing and education of consumers

Need for information about wind regimes in wide areas

Lack of installation and design capacity

3 See related report on Tanzania’s solar energy sector: “Target Market Analysis: Tanzania’s Solar Energy Market.”


Recommendations for

German enterprises Utilise the same supply chains that deliver PV systems

Target approaches to the various market groups

Work closely with the REA to develop procurement projects

Train skilled installers to market product in target areas

Avoid “box-shifter” dealers, focus on specialist that provide good customer

service

2.2 Undeveloped Market Opportunities

2.2.1 Stand-Alone Wind Systems for Commercial Battery Charging Stations

A considerable number of off-grid small businesses and households utilise centrally-recharged lead-

acid batteries for 12 VDC electricity needs. In areas remote from the grid, charging 12 VDC batteries

with wind power presents an interesting business opportunity. This business opportunity could be

franchised by local organisations.

Table 6: Stand-Alone Wind Systems for Commercial Battery Charging Stations

Technology to be

applied 1.5 – 10 kW wind generators charge consumer batteries and sell related products

and services.

Anticipated total

potential Economic potential is in the hundreds of units.

Applicable

support/financing

mechanisms

Because of the potential for employment and income generation, this type of

business would be eligible for support from Micro Finance Institutions and possibly

the REA.

Constraints/obstacles Development of an appropriate business model is a concern with this concept.

Financing of the units for entrepreneurs is also a key obstacle.

Recommendations for

German enterprises Business model and technical solution would have to be “pushed” out to the rural

entrepreneurs, possibly in conjunction with financing.

2.2.2 Stand-Alone Wind Generators for Tourism in Off-Grid Locations

There are several hundred off-grid tented camps and lodges in Tanzania.

Table 7: Stand-Alone Wind Generators for Tourism in Off-Grid Locations

Technology to be

applied Hybrid wind-generator systems and/or mini-grids. System sizes would vary greatly

depending upon the size of the lodge or camp (3 kW to 100 kW+).

Anticipated total

potential Total market size is relatively small (15-30 systems) each of which would perhaps

be as large as 50 kW on average.

Applicable

support/financing

mechanisms Tourism players would identify their own finance.

Constraints/obstacles Operation of wind systems would have to be integrated into normal operation of

camp/lodge. High up-front investment costs would be difficult for many companies.

Recommendations for

German enterprises Pursue wind power for camps at senior levels of tourism industry. Complete one

“demonstration” and use it as a sales point for other camps/lodges.


2.2.3 Stand-Alone Wind Generators in Hybrid Systems for Telecommunication

Most base stations in East Africa are powered by diesel gen-sets, thus fuel is a huge cost factor for

their operation. In Kenya, Safaricom has already installed at least 20 hybrid wind-generator systems

for their off-grid base stations. In Tanzania, there are 600 off-grid base stations, perhaps 20 % of

which are in presumably high-wind areas.

Table 8: Stand-Alone Wind Generators in Hybrid Systems for Telecommunication

Technology to be applied Hybrid wind-generator-battery units powering base station for cell phone companies.

Wind provides > 70 % of total energy for system.

Anticipated total

potential Total potential market of > 100 sites where ±3 kW units would be installed.

Applicable

support/financing

mechanisms

Telecommunication companies (or base station operators) buy units or pay for

energy service.

Pilot Safaricom in Kenya is piloting units successfully.

Constraints/obstacles Base stations require power 100 % of the time and do not allow “down” time - this

means that wind resources would have to be completely evaluated.

Recommendations for

German enterprises Approach telecommunication providers at a high level.

2.2.4 Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids

Many remote out-posts in rural areas utilise diesel mini-grids for office, pumping, clinic and school

power. Wind electricity fed into such grids can greatly reduce costs of fuel, which is the main

operational cost of such systems.

Table 9: Wind-Diesel Hybrid Systems for Rural Electrification through Mini-Grids

Technology to be applied Hybrid wind-diesel generator set (50 kW to 1 MW) possibly with battery back-ups

and inverters. Size would depend on demand and available funding.

Anticipated total

potential Scores of potential sites identified in Rural Electrification Master Plan.

Applicable

support/financing

mechanisms

This type of system would be funded by donors, REA, missions. See section 3.2 to

off-grid tariff structures for SPPTs.

Pilot

Constraints/obstacles

Technology is relatively new. Management of systems in remote areas is a

significant risk. Many operators of off-grid generators (who make a “rent” income

from sales of diesel) would be reluctant to utilise wind and reduce fuel usage.

Recommendations for

German enterprises

Development of this business will require close collaboration with REA or funding

donor. Consult the Energy and Water Utility Regulatory Authority (EWURA) on

projects that might qualify for special Standardised Power Purchase Tariffs (SPPT)

payments.


3 Wind Energy-Specific Regulation and Framework

Although Tanzania does not have a programme of feed-in tariffs that provides set payments for

specified technologies, it has recently-designed mechanisms to encourage the development of small

renewable energy-based power plants, namely hydro, wind and biomass. These mechanisms include

a standardised power purchase agreement (SPPA) and associated standardised power purchase

tariffs (SPPT). Small power projects (SPP) are defined for small power plants that use a renewable

energy power source (or waste heat) with an installed capacity of between 100 kW and 10 MW4.

Essentially, the purpose of the SPPAs is to speed up development and simplify the process of putting

small power systems in place for standard 20-years-periods. The SPPAs encourage embedded

generation on a system that is extremely susceptible to hydro power fluctuations, and which has large

distances separating power supply and demand centres.

Projects are only now being developed through the SPPA structures and the process is far from

perfect. Some private sector players interviewed complain quietly that EWURA may be exceeding its

mandate by not allowing developers and private investors to set their own rates of return or

benchmarks, making the overall process risky from the point of view of investors who are already wary

of Tanzania.

3.1 Policies and Regulations

Government policy in Tanzania is increasingly favourable to all renewable energy and wind energy in

particular. Indeed, wind companies maintain that the overall tone of the government is extremely

positive toward their projects. However, practical implementation of favourable policy has some ways

to go to be fully facilitative of wind projects.

The government agencies primarily concerned with development of wind projects include:

Energy and Water Utilities Regulatory Authority (EWURA). The regulator is responsible for

negotiation and approval of any PPA. It was empowered by the Energy and Water Utilities

Regulatory Authority Act of 2001 to approve wholesale power sale terms and tariffs.

Tanzania Electricity Supply Company Ltd (TANESCO). State-owned TANESCO is virtually

a monopoly electricity utility in Tanzania. Proposals for grid-connected power projects must be

made to TANESCO (and approved by EWURA). TANESCO pays project developers for

power supplied on-grid.

Ministry of Energy and Minerals (MEM). This is the government’s policy-making body which

is tasked with the job of administering law and facilitating the development of the SPP

development and power sale.

Rural Energy Agency (REA). This body is concerned with the development of off-grid

projects and the administration and awarding of rural electrification subsidies and grants.

Projects seeking support to supply power in remote or off-grid areas would deal with REA.

REA was set up to address the special requirements of rural consumers through

programmatic grant and subsidy support. The government, the World Bank, the Swedish

International Development Cooperation Agency (SIDA) and numerous other donors provide

funding for REA’s activities.

4 Larger wind or biomass plants may be able to negotiate to fit under these agreements. However, if the size is significantly

larger, the IPP may have to negotiate a new agreement.


Grid connection procedures

TANESCO outlines on equipment, transmission and distribution requirements and standards, including

the “Interconnection Guidelines”, that apply to the installation and to the operation of all equipment and

interconnections. However, local project developers complain that TANESCO does not keep to

defined standards for wind projects.

Key permits required include the following:

The National Environment Monitoring Agency (NEMA) approves environmental impact

assessment (EIA).

Registration at the Tanzania Investment Centre (TIC). This organisation supports investors

and is extremely helpful in providing assistance to investing companies.

Generating license or preliminary licence.

Land acquisition. The land “ownership” process is complex as it involves agreements with

municipalities and villages. Land surveys must be completed as well as evaluation

compensation paid to local groups. Title deed for the land is necessary (all land in Tanzania is

owned by the government and a midterm lease or 99 year lease would have to be obtained).

Standards and technical requirements

So far, there are no accepted standards or grid codes for wind farms. Local developers are following

Europeans standards.

Public acceptance issues

At present there are few “Not-in-my-backyard” issues with regard to wind in Tanzania. Land is widely

available, and, in general, the locations where wind resources are high are sparsely populated. Issues

may arise where wind generators are located next to areas important to bird life or game reserves.


3.2 Applicable Public Sector Support/

Financing Mechanisms and Sources

Government support for wind projects has only been recently developed and those projects currently

in the pipeline are “testing the waters”. None of the projects interviewed is moving as quickly as

originally planned, but there is considerable optimism about the future of wind in the country.

Incentives and support mechanisms available for developers of wind projects are briefly summarised

in the table below:

Table 10: Incentives and Support Mechanisms for Wind Project Developers

Support Mechanism Comments and Description

Standardised power

purchase tariffs (SPPT)

Simplified standard 20 year tariff agreements for renewable energy projects

between 100 kW and 10 MW. SPPA specifies tariff rates for

Grid-connected and mini-grid power,

Types of power (wind, biomass, hydro), and

Power delivery season (dry/rainy).

Tax relief Projects with a status of strategic national importance can negotiate tax

incentives from the government.

Rural Energy Agency (REA)

Under the Ministry of Energy and Minerals (MEM)/Rural Electrification Agency

(REA) and Tanzania Access Development Energy Project (TADEP)

programme (supported with government and World Bank funds), special

dispensations are available for renewable energy projects. Though wind

projects are not specifically mentioned, it is likely that they would be

considered. REA makes support available for innovative off-grid renewable

energy projects.

Special loan options Nothing locally available

Duties No import duties because of registration with Tanzania Investment Centre

(TIC).

Carbon credits Tanzania is a party to the Kyoto Protocol and has a standard government

process for approval of Clean Development Mechanism (CDM) projects.

The following sections summarise the SPPT payment schemes as of 2008 in both grid-connected

systems and off-grid systems.

3.2.1 Grid-Connected Wind Tariffs

As noted above, a Standardised Power Purchase Agreement (SPPA) was developed for small (100

kW- 10 MW) projects by the Tanzanian Government. However, this agreement was not found to meet

the needs of existing wind developers (whose projects are above the 10 MW maximum anyway) and

they have had to develop more comprehensive agreements.

Tariffs for wind farms are based on calculated long run marginal costs of electricity calculated each

year, with two fixed price boundaries. A lower “Floor Price” provides for returns on investment for

investors while a “Price Cap” sets a maximum price per kWh to be paid to the SPP.


These levels are set out in the table below. The seasonal adjustments are designed to lower prices

paid during wet periods, when hydro power is more available.

Table 11: Grid-Connected Wind Tariffs

Floor Price TZS USD

Long-run marginal financial costs adjusted for

avoided losses

80.0 TZS/kWh 0.064/kWh

Seasonally adjusted

standardised

Dry season Aug-Nov 96.0 TZS/kWh 0.0768/kWh

Wet season Jan-Jul and

Dec

72.0 TZS/kWh

0.0576/kWh

Price Cap

Seasonally adjusted

standardised

Dry season Aug-Nov 280.5 TZS/kWh 0.224/kWh

Wet season Jan-Jul and

Dec

210.4 TZS/kWh 0.168/kWh

(Exemplary period of validity: 1st January to 31st December, 2008)

3.2.2 Mini-Grid Wind Tariffs

For off-grid projects, rates are much higher5, and reflect the higher costs of running diesel gen-sets in

remote areas. Renewable projects connected to mini-grids of TANESCO (and other companies) will

receive payments that are technology-specific, cost-based, and based on three tiers. The tariff will

consist of a fixed rate, an operation and maintenance (O&M) rate (and a fuel rate for biomass). The

table below summarises the proposed rates (from the 2007 draft SPPT report which has been

adopted).

Table 12: Mini-Grid Wind Tariffs

Tariff component Off-grid wind SPP payment

(TZS/kWh)

Off-grid wind SPP payment

(USD/kWh)

Escalable base O&M rate (year 1) 38.8 0.031

Escalable base fuel rate (year 1) 0 0.00

Tier 1 non-escalable (Year 1-8) 337.1 0.270

Tier 2 non-escalable (Year 9-15) 140.4 0.112

Escalable year 16+ 18.0 0.014

For wind-based power generation in mini-grids, the payment process would be more complex, as

there will be need for firm power from diesel generators to cover fluctuations in wind availability.

Special tariffs paid for wind would have to be balanced against the costs of this “spinning reserve”.

Therefore, wind in off-grid sites will not be as attractive as micro-hydro in mini-grids where it is

available, and the incremental costs of setting up a wind-based mini-grid will necessarily be much

higher than grid-connect.

5 Based on final recommendations of “Standardised SPPTs for Tanzania, Final Draft June 2007”.


4 Business Partners and Competitors in the Wind Energy

Sector

4.1 Overview of Wind Energy Key Market Players

Table 13: Tanzania's Wind Energy Key Market Players

Importing

company

Company

description

Company

strategy

Major

activities

Contact details

Wind East

Africa

Tanzanian

owned wind

project

developer

Involved in

developing two 50

MW wind farms in

Singida

Wind

projects

Michael Case

Principle Project Manager

5th Floor Barclays House

P.O. Box 11133

Tel: (+255) (0) 786 7908 300

Fax: (+255) (0) 22 2127818


Ashton Energy Wind project

developer

Start-up company Wind

equipment

and projects

Abbas Hirji, Director

P.O. Box 5182

1st Floor Raha Towers

Tel: (+255) (0) 222 137672

Mob: (+255) (0) 756 885 994


Internet: www.ashtonenergy.com

Rural Energy

Agency

Address the

special

requirements of

rural consumers

Programmatic

grant and subsidy

support

Rural energy

support

agency

Mwakehesya Lutengano


TANESCO State-owned

electricity

company

Electricity sales &

purchases. Pays

for wind electricity

Electricity

sales

4.2 Overview Major and/or Most Emblematic Wind Energy Projects

There are two active wind projects in Tanzania:

Wind East Africa project. Started by local investors in 2007, this project aims to install two

50 MW farms in Singida, in two phases. A UK investor is partner within the consortium. Land

acquisition has been completed in Singida, the PPA is under negotiation. Financial close is

expected in 2009/2010, and commissioning is expected to start directly thereafter.

Good P.M Group (Korean), 210 MW project, Singida. The project was originally related to

the Wind East Africa project.6 The group has signed a Memorandum of Understanding to

acquire the 500-hectare property in Singida from Tanzania’s Power Pool East Africa Ltd.

Danida/Risø/TANESCO demonstration. The 2001/02 Danida study has originally planned to

work with TANESCO to implement a wind farm. The project is not active at present.

6 Project information from: http://www.windfair.net/press/5987.html.



http://www.ashtonenergy.com/


http://www.windfair.net/press/5987.html


Annex: Standardised Power Purchase Tariffs (SPPT)7

Rates for Delivery of TANESCO's Entitlement

The tariff payable shall be based on the avoided long-run marginal costs of buyer, as revised and

announced by the regulator applicable to each calendar year of the agreement. The tariff is seasonally

differentiated and is adjusted annually within the limits of a minimum and maximum price.

Year of execution of SPPA: 2008

Table 14: Seasonally Adjusted Standardised Tariff Payable for Power Delivered to Buyer in 2008

Season Months applicable to season TZS/kWh

Dry season August through November 96.0

Wet season January through July and December 72.0

Minimum Price: The annually applicable tariff during the term of the agreement shall not be less than

the price for the initial year, as set forth above.

Maximum Price: The annually applicable tariff during the term of the agreement shall not exceed the

prices, by type of SPP technology, set forth in the table below.

Table 15: Seasonally Adjusted Standardised Tariffs

Season Months applicable to

season

Small hydro

(TZS/kWh)

Wind

(TZS/kWh)

Biomass

(waste)

(TZS/kWh)

Biomass

(grown)

(TZS/kWh)

Dry season August through November 157.1 280.5 200.7 246.1

Wet season January through July and

December

117.8 210.4 150.5 184.6

7 From: Standardised Power Purchase Agreement for purchase of grid-connected capacity and associated

electric energy between TANESCO and a small power project” (revised draft). June 2007.


References

Nzali, A & Mushi, S. “Wind Energy Utilization in Tanzania”, PREA Workshop 2006.

DFIC - Dr. Fromme International Consulting, “The Potential of Renewable Energies in East

Africa Wind Energy”. East African Business Council. 2007.

GTZ (2009): Business Guide Tansania, Eschborn.

Risø National Laboratory/Danida: "Wind Measurements and Wind Power, Feasibility at

Selected Sites in Tanzania, 2001-2002”. Draft Final Report, May 2003.

“Standardised Small Power Purchase Tariffs for Tanzania”. Final Draft Report June 2007.

Ferrey, Steven, “Standardised Power Purchase Agreement for purchase of grid-connected

capacity and associated electric energy between TANESCO and a small power project”

(revised draft). June 2007.

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Documents

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